Pittsburgh firm settles Le-Nature’s suit: $23.7M

PITTSBURGH (AP) — One of the city’s leading law firms has settled a malpractice claim stemming from the $684 million fraud scheme at Le-Nature’s, a defunct western Pennsylvania soft drink maker.

K & L Gates didn’t acknowledge wrongdoing as part of the $23.7 million settlement finalized Friday.

A bankruptcy court trustee had accused K & L Gates and one of its attorneys, Sanford Ferguson, of professional negligence for its role in an investigation that failed to uncover the massive fraud at Le-Nature’s.

The company’s founder, Gregory Podlucky, is serving a 20-year federal prison sentence for the accounting scheme that bankrupted the company. Other company executives and associates also received stiff sentences.

The bankruptcy trustee, Marc Kirschner, sued the law firm claiming Ferguson overlooked evidence that could have stopped Podlucky’s scheme, and kept him from looting the firm before creditors forced the company into bankruptcy. As trustee, Kirschner’s job is to recoup as much money for those who lost money when Le-Nature’s went belly-up in late 2006.

Ferguson and the law firm were hired in 2003 by three members of Le-Nature’s board of directors, over concerns that Podlucky was stealing from the company.

Ferguson, who found no wrongdoing by Podlucky, was later hired in September 2006 to handle the company’s initial public stock offering.

The IPO never occurred because Le-Nature’s was forced into bankruptcy a month later, after minority investors seeking to get money out of the company sued and a Delaware judge concluded that financial fraud most likely had occurred.

Podlucky eventually pleaded guilty to using two sets of books to inflate the company’s financial statements and obtain $875 million in credit and equipment leases.

Although some of the money was paid back or recovered by liquidating the company; investors, vendors and, mostly, lenders lost $684 million, and 240 workers lost their jobs when the company folded in Latrobe, about 40 miles east of Pittsburgh.

Podlucky took advantage of the company’s artificially bloated worth to siphon at least $30 million for himself, which he spent lavishly on gold, silver and platinum jewelry and diamond-rich watches, an 8,000-piece model train collection, and $10 million spent on a mansion that was never finished, federal prosecutors said.

K & L Gates spokesman Michael Rick said the firm and Ferguson had no comment on the settlement.